Suppose the returns on an asset are normally distributed Sup

Suppose the returns on an asset are normally distributed. Suppose the historical average annual return for the asset was 5.1 percent and the standard deviation was 14.5 percent. What is the probability that your return on this asset will be less than –8.1 percent in a given year? Use the NORMDIST function in Excel® to answer this question. What range of returns would you expect to see 95 percent of the time? (Enter your answers for the range from lowest to highest. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

Solution

Suppose the returns on an asset are normally distributed. Suppose the historical average annual return for the asset was 5.1 percent and the standard deviation was 14.5 percent. What is the probability that your return on this asset will be less than –8.1 percent in a given year? Use the NORMDIST function in Excel® to answer this question.

Excel function   =NORM.DIST(-8.1,5.1,14.5,TRUE)

P( x < -8.1) = 0.18132

What range of returns would you expect to see 95 percent of the time? (Enter your answers for the range from lowest to highest. Negative amounts should be indicated by a minus sign. Do not round intermediate calculations and round your final answers to 2 decimal places. (e.g., 32.16))

Lower value =NORM.INV(0.025,5.1,14.5)

Upper value =NORM.INV(0.975,5.1,14.5)

Range =(-23.32, 33.52)